France unveils toughest-ever budget in bid to plug deficit

PARIS -- France on Friday unveiled action to plug a 37-billion-euro hole in its public finances with the toughest package of tax rises and spending cuts the country has known in an economic downturn.

The 2013 budget adopted by President Francois Hollande's cabinet commits the ruling Socialists to an austerity program at a time when the economy is teetering on the brink of recession.

Ministers defended measures that included a 75-percent top tax rate as unavoidable if France is to get its finances under control and meet European Union deficit targets deemed essential to avoid the collapse of the euro single currency.

But opposition critics derided a budget that will take billions out of the economy at a time when unemployment is close to record highs and contested government claims that the richest ten percent would bear the brunt of the pain.

The budget breakdown indicated that France needs to make 36.9 billion euros (US$48 billion) in savings if it is to meet its target of reducing its budget deficit from an anticipated level of 4.5 percent of GDP this year to the EU ceiling of 3 percent in 2013.

"The three percent target is vital for the credibility of the country," Finance Minister Pierre Moscovici said. "We are committed to it and we will meet it."

Friday's budget was the first since Hollande was elected President in June.

The total of 36.9 billion of savings includes 12.5 billion of cuts — 2.5 billion on health spending and 10 billion across other government departments.

A total of 10 billion will come from extra taxes on individuals and a further 10 billion from new taxes on businesses. These are in addition to 4.4 billion worth of new taxes announced in July.

Data released on Friday revealed that France's national debt had risen to 91 percent of GDP, a level the premier described as unsustainable.